Troubled cryptocurrency lender Celsius filed for bankruptcy this week and became the latest victim of a bear market that continues to leave a devastating path in the digital currency space.
A global recession and the worst inflation in more than 40 years have wreaked havoc on the nascent cryptocurrency market this year — sparking a furious crypto winter that has forced once-ambitious companies out of business and sent investors into panic sell-off mode. The storm has taken trillions of dollars in market capitalization, billions of dollars in frozen funds and thousands of jobs, but the current casualties may be just the beginning of the storm.
“There will be others coming forward — I don’t think it’s going to end there,” Marcus Sotiriou, an analyst at London-based digital asset brokerage GlobalBlock, told Forbes, noting that nearly a dozen, including Peter Thiel-backed Vauld The company – faces an uncertain fate after shutting out customers or initiating restructuring proceedings over the past month. “It’s going to be an ongoing period of pain,” he said.
It’s anyone’s guess whether the current crypto bear market will finally rival the years-long crypto winters of 2014 and 2018 that wiped 80% from Bitcoin’s price while smashing hundreds of then-popular new token. Sotiriou believes that unless persistent inflation cools soon, the downturn could last as long as 12 months, allowing the Fed to unwind with sharp rate hikes that would make risk assets less attractive to investors. Analysts aren’t quite sure if that will happen.
“This is necessary for any financial market to mature and develop,” argues Matteo Dante Perruccio, a partner at crypto investment firm Wave Financial, who envisions cryptocurrency prices taking at least six months or even two years to recover, similar to the cycle past . “But this time, things are different,” he added, noting that institutional money from Tesla, Goldman Sachs, Morgan Stanley and others has driven widespread adoption during the pandemic: “When we inevitably return to An appreciating market that will be more sustainable and healthy, with less speculation and more tried-and-true investment ideas.”
As cryptocurrency investors await brighter days ahead, Forbes is tracking all the carnage of the latest crypto winter, including layoffs, price slumps and record sell-offs — as well as lifelines and acquisitions that may help soften the blow. The damage so far is as follows:
Trillions of value wiped
Low interest rates and government stimulus have fueled a surge in cryptocurrency prices during the pandemic, but the Fed’s decision to curb rising inflation by raising interest rates has hit investor sentiment — sparking some of the biggest losses in cryptocurrency market history . After accumulating a record value of over $3 trillion in November 2021, the cryptocurrency market had its worst first half ever and has plunged to about $920 billion, down about 60 percent this year, according to CoinGecko. %.
On the heels of the bearish sentiment, Terra’s luna token, once the top cryptocurrency valued at over $40 billion, fell in after sister token TerraUSD, a stablecoin designed to hold a $1 price, broke its peg to the US dollar. Almost lost all value in a week in May. Market crashes. Meanwhile, top cryptocurrencies Bitcoin, Ethereum and BNB are down 70%, 75% and 65% respectively from their all-time highs. It will take years for the market to recover from a similar decline: Beginning in 2017, tightening regulations sparked an intense crypto winter, with the world’s largest cryptocurrency taking more than 1,000 days to hit new highs.
Thousands laid off
Facing a sharp drop in the market, cryptocurrency companies have laid off more than 2,000 workers in less than five weeks. The biggest blow so far came when popular brokerage Coinbase laid off 1,180 employees, or about 18% of its workforce, on June 14, just weeks after the firm’s billionaire CEO Brian Armstrong (Brian Armstrong) warned investors that a potential recession could lead to a prolonged bear market in the stock market. cryptocurrency. In a report announcing the layoffs, Armstrong said he was planning to “prepare for the worst” and acknowledged that the company had “grown too fast” during the pandemic bull market. “It’s surprising and difficult,” wrote one former employee on LinkedIn. Others describe the cuts as “sudden” and “sudden.”
Also in June, Gemini, the exchange founded by the billionaire Winklevii twins, said it would lay off about 10% of its 1,000 employees, and exchanges Crypto.com and BlockFi said they would lay off 5% and 20% of their staff, affecting about 260 employees. Staff. and 170 employees. Since then, lending platform Celsius has reportedly cut 150 jobs and Austrian trading platform Bitpanda has cut 270 jobs, calling the move “necessary.” . . weather the storm and come out financially healthy. “
Investors poured into cryptocurrency investment funds at a record pace as bitcoin fell to an 18-month low last month. In the week of June 17, outflows totaled $423 million, nearly erasing all inflows for the year and surpassing a record of $198 million set in January, according to data from crypto asset manager CoinShares. The turmoil pushed assets under management in crypto investment products to a record 216 last month as the “imminent threat of liquidation” sparked investor “panic” after the Luna crash, CryptoCompare analysts wrote in a report. billion, down 37% from May. Meanwhile, Bank of America reported that the number of its customers using cryptocurrencies has fallen by more than 50% since the market high in November, to less than 500,000.
Even bullish cryptocurrency companies have to consider the changing market. Last week, top miner Core Scientific revealed that it raised more than $167 million by selling most of its bitcoin in June at an average price of $23,000. In a statement, CEO Mike Levitt attributed the sales to “enormous pressure” driven by a weaker market, higher interest rates and “historic inflation.” Canada-based Bitfarms, which made headlines in January for buying bitcoin for its balance sheet alongside Tesla and former billionaire Michael Saylor’s MicroStrategy, also sold off late last month for $62 million 3,000 bitcoins, or nearly half of all bitcoins.
“This is the typical behavior of bitcoin miners selling in the final stages of a bear market,” Sotiriou explained, noting that some companies may need backing funds to cover fees or remain solvent, as high inflation increases operating costs.
billions in frozen cash
On June 13, cryptocurrency lender Celsius became the first major platform to suspend withdrawals and transfers between customer accounts, citing “extreme market conditions.” Within days, others followed suit: Babel Finance, CoinFLEX, and Voyager all froze withdrawals. No one has re-enabled access, thereby depriving its investors of billions of dollars.
“They are in a very tricky position because they were irresponsible for their customers’ money, lost it somehow, and now they can’t repay the customer, and there’s no guarantee they’ll repay the money,” Sotiriou explained. Publicly traded Coinbase warned in its most recent quarterly report of the risk of disclosing that customers would be considered “unsecured creditors,” or lenders without collateral, should the company go bankrupt.
A handful of crypto companies are collapsing. On June 27, Voyager issued a default notice to troubled Singapore-based crypto hedge fund Three Arrows Capital (3AC) for failing to pay a $675 million bitcoin and stablecoin loan. 3AC at one point managed about $3 billion, but Singapore’s financial watchdog condemned the company late last month for providing false information and only had the authority to manage as much as $250 million. On top of that, 3AC’s troubles were exacerbated by the sell-off’s impact on its riskier investments, which reportedly included an over-leveraged bet on the Grayscale Bitcoin Trust and a roughly $200 million bet on the now-worthless Luna. Note. On June 29, a British Virgin Islands court reportedly ordered 3AC to liquidate its assets, finding the company insolvent; it filed for Chapter 11 bankruptcy the same day.
With 3AC’s fate doomed, Voyager itself filed for bankruptcy on July 5 — just four days after it suspended trading. “While I am a firm believer in this future, the long-term volatility and contagion of the crypto market requires that we take deliberate and decisive action now,” Voyager CEO Stephen Ehrlich said in a statement. In a court filing, the company said Disclosed that it has more than 100,000 creditors and assets of up to $10 billion.
Celsius became the next victim, filing for Chapter 11 bankruptcy on July 13. It lists $1 billion to $10 billion in assets, liabilities in the same range, and dozens of multi-million dollar loans from crypto billionaire Sam Bankman-Fried and others Alameda Research, brokerage Company Covar.io and investment firm Invictus Capital. “This is the right decision for our community and company,” co-founder and CEO Alex Mashinsky said in a statement.
More likely to come soon: After a moratorium on exit, Vauld also announced it was exploring restructuring options.
Lifeline and War Chest
Some crypto firms hope to be rescued by turning to more stable peers before being forced to close their doors. On July 1, Bankman-Fried’s FTX struck a deal to acquire troubled BlockFi for as much as $240 million. “You know, we’re willing to make a bit of a bad trade here if that’s what’s needed to stabilize things and protect customers,” he said last month in offering FTX to BlockFi and Voyager and his quantitative trading firm Alameda. More recently, he said FTX has “billions” left to help struggling companies.
Meanwhile, Goldman Sachs is reportedly looking to raise $2 billion to help buy distressed assets from Celsius, and other traditional institutions are showing interest. “I have this knee-jerk reaction, if you believe the fundamentals of a long-term case are really strong, when everyone else is down, that’s the time to double down,” said Fidelity CEO Abby Johnson, He led the company this year and last month, when asked when her third crypto winter might be, she said it was the industry’s first decision to allow bitcoin in 401(k) plans. “It’s usually the right move.”
“It’s incredibly encouraging,” Dante Perucio said. “Large institutions looking for distressed crypto assets mean they believe the industry will make a comeback — and come back strong — even though we’re all in these very complicated times.”
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